Release Date: April 21, 2009
For release at 4:00 p.m. EDT
The Federal Reserve Board on Tuesday announced two new interest rates applicable to loans extended under the Term Asset-Backed Securities Loan Facility (TALF). The rates apply to certain loans secured by asset-backed securities (ABS) with weighted average lives to maturity (WALM) of less than two years. The new rates will be based on one- and two-year London interbank offered (Libor) swap rates, resulting in a better match to the duration of the underlying ABS collateral.
The new rates, along with some technical clarifications, will take effect for the May TALF funding. Subscriptions for the May funding will be accepted on May 5, and the loans will settle on May 12.
The new interest rates apply to fixed-rate TALF loans secured by ABS that do not benefit from a government guarantee. The interest rate for TALF loans secured by ABS with a WALM of less than one year will be the one-year Libor swap rate plus 100 basis points. The interest rate for loans secured by ABS with a WALM of one year or more but less than two years will be the two-year Libor swap rate plus 100 basis points. The interest rate on loans secured by ABS with a WALM of two years or more will continue to be the three-year Libor swap rate plus 100 basis points.
The Board authorized the TALF on November 24, 2008, under section 13(3) of the Federal Reserve Act. The TALF is intended to make credit available to consumers and businesses on more favorable terms by facilitating the issuance of ABS and improving the market conditions for ABS more generally. Under the TALF, the Federal Reserve Bank of New York extends three-year loans secured by AAA-rated ABS backed by newly and recently originated loans.
A new term sheet and a revised frequently-asked-questions document are attached.